Berlin, 09.02.2018. The performance of the international capital markets is currently making a lot of headlines. The robos, it's claimed, triggered a crash; sometimes people speak of a meltdown and of the revenge of the machines. But what's really behind these claims? How do capital market experts assess the DAX's performance and the implications for digital investment offerings like quirion? Dr Anselm Hüwe, Senior Analyst at quirion, has taken a close look at the key points and comments:
Claim 1: It was the biggest price plunge of all time.
Among other things, it was reported that the 1,000-point price drop was the biggest fall in the history of the Dow Jones. Formally, that's correct, but changes in value should generally be viewed in percentage terms. It makes a huge difference whether the Dow Jones loses 1,000 points from its current level of over 20,000 points, or whether this happens - as it did in 1987 - at a level of 2,700 points. Global equity markets have lost as much as 8 percent at their peak these past few days; that's not unusual. What's more unusual is that in recent years things went steadily upwards with only minor setbacks. These figures show how unsuitable it is to express a price slide in points.
Claim 2: Robo-advisors are causing a market crash.
Almost a compliment to robo-advisors. Even in total, robos are (still) too small to significantly influence the market. Of the 138 trillion (!) US dollars in assets managed worldwide, 226 billion US dollars are currently attributable to robos. That's a mere 0.16 percent. What's more, robos often use algorithms that, unlike active funds, rarely trigger transactions. Aside from the usual withdrawals and top-ups, quirion has not traded at all recently. The underlying algorithm and the similarly designed algorithms of US robos have nothing to do with the market movements. Should prices continue to fall, quirion will buy equities as part of its systematic rebalancing and take advantage of the favourable entry prices in a countercyclical way. That will - if anything - stabilise prices rather than weaken them. This sets quirion apart from other robo-advisors that actually have to sell procyclically after price plunges if they have promised their clients loss limits.
Claim 3: Investors who use robo-advisors have cause for concern.
"Anyone who wasn't worried two weeks ago doesn't need to be now either. And anyone who is worried now has too high an equity allocation," comments Dr Hüwe. "Most investors are focused on the long term - for them, movements like these barely matter anyway." On top of that, quirion also offers defensive strategies that were largely spared the price movements and, with a price decline of just 0.47 percent since the start of the year, have remained almost unchanged. "If investors do become uneasy in light of the recent price developments, a somewhat more defensive strategy may be better suited to them," Hüwe continues.
Claim 4: When the markets fall, clients abandon the robos.
quirion cannot confirm this in any way. There were withdrawals and top-ups within the usual range. Some clients seized the opportunity to top up - and quirion continued to win new clients as before.
Claim 5: Some robo-advisors in the US had technical problems because of the crash.
The problems that did actually occur were minimal: the website of American robos went down for half an hour, but not the trading algorithms. In Germany, there were no problems at all.
Claim 6: Short-term risk management strategies work.
What the past few days have shown very clearly, however, is that risk management strategies of the kind some robos use don't always deliver what they promise. Prices fell so quickly that there was hardly any way to react in time. Risk management approaches cannot foresee a price plunge; they can only react (sell) once it's actually already too late. Such strategies can therefore cost valuable returns - every investor should be aware of that.
About quirion:
quirion is one of the leading robo-advisors in Germany and a branch of Quirin Privatbank AG. quirion offers a smart, low-cost and convenient way to invest online. From as little as 10,000 euros, investors can benefit from the advantages of fee-based advice - independence, transparency and the use of low-cost, efficient investment products. quirion was founded in November 2013 by Karl Matthäus Schmidt, Chairman of the Board of Quirin Privatbank AG, and Anna Voronina. In the industry, Schmidt is regarded as a pioneer and lateral thinker: before quirion, he had already revolutionised the banking market twice - by founding the first online broker, Cortal Consors, and by founding Germany's first fee-based advisory bank, Quirin Privatbank AG.
Media contact:
Janine Pentzold
Corporate Communications
Quirin Privatbank AG
Kurfürstendamm 119
10711 Berlin
Phone: +49 (0)30 89021-336
Email: janine.pentzold@quirinprivatbank.de
